Can You Really Buy an iPad for $1.10?

You've seen those ads for auction sites with rockbottom prices. Are they for real?

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If something sounds too good to be true, it is. So it should come as no surprise that those commercials featuring people who got HDTVs for $50 or iPads for $87.13 don't really tell the whole story.

Auction sites like QuiBids, Beezid, HappyBidDay, and others might sound like they are magically underpriced versions of eBay, but they're not traditional auctions. Rather, they're penny-auction sites, a hybrid of auctions and gambling.

On penny-auction sites, bids cost money and that money is gone whether or not you win. If that sounds a lot like gambling, more than a few have sued claiming that very thing.

"Those opposed to penny auctions believe that they contain the three basic elements typically associated with gambling—prize, chance, and consideration," said Richard B. Newman, a state attorney general investigations lawyer with Hinch Newman LLP. "In order to remove the activity from the realm of gambling, the element of chance needs to not be present. Penny-auction website operators take the position that the service is an exercise based upon skill."

So much about penny auctions is misleading and confusing that the "skill" seems to be just decoding how they work.

A Dollar and a Dream First there's the word "penny." Each bid on penny-auction sites is said to be 1 cent but that's not its monetary value. Depending on the site, a 1-cent bid costs anywhere from 50 cents to $1. One of the first things to disabuse you of your big-screen, low-price dreams when signing up for QuiBids, for example, is the offer of a bid pack of 100 bids for $60.

Some words of caution from QuiBids before you start. "After you get your first bid pack, a pop-up appears that prompts you to read QuiBids 101," said Blake Brown, social media manager at QuiBids. "There, you'll find all the information you'll need to prepare you to start bidding. Additionally, when a new bidder tries to bid on a big-ticket item, a similar pop-up appears encouraging the new bidder to start on smaller auctions until they get some experience under their belt.

DealDash, meanwhile, offers a second shot if bidders go through their first bid pack without a win.

"If you are still unhappy at this point we'll give you your money back for your first purchase," said Bart Jansen, director of operations at DealDash.

The amount spent on bids is not included in the price when someone wins an item. So if they win a TV for $450, they'll pay that $450, plus however much they spent on bids. The winning bid prices advertised by penny-auction sites, however, do not include the cost of the actual bids.

Time Is Relative One of the most satisfying or heartbreaking parts of an auction are those last few seconds. Whatever the outcome, the agony or the ecstasy isn't prolonged. On a site like eBay once time has run out, it's out.

But on penny-auction sites, the clock ticks ticks ticks down to a win...and then resets. On QuiBids and many other sites any bid in the last 20 seconds resets the clock to 20 seconds. As those minutes turn into hours, your fellow bidders might seem unrelenting and tireless. There's good reason for that.

Domo Arigato Mr. Roboto Some sites have been accused of using robots to place false bids and drive up the numbers of bids from others and the price of items. Newman said that among the top complaints he hears about penny-auction sites is that they use phony bidders and bots to drive up prices.

One penny-auction site, ArrowOutlet.com, went out of business after a lawsuit from the Washington State Attorney General's Office alleged that it used bid robots to artificially inflate bids.

Even the human bidders might have robots in their employ. Some use programs like Bidder Robot, an automatic bidding software that can swoop in at the last second and place a bid, place bids on multiple items simultaneously, and show the history of other bidders.

"The use of any third-party sniper/robot bidding software is prohibited by our site terms and subject to account termination," said QuiBids's Brown. But the site does offer Bid-O-Matic, an automatic bidding feature that users can enact mid-bid or set ahead of time.

DealDash said it does not allow robot bidders. PriceWaterhouseCoopers audits the site every year and its software gets audited by AlignCPA, Jansen said.

You Win Some, You Lose Some After investing hours and dollars in an item only to lose it, bidders might find themselves wishing they'd just bought the item at full price. Penny-auction sites have prepared for just this and often have buy-it-now prices. Once a bidder has lost, they can purchase the item at full retail price, minus the cost of the bids they put in.

"Once a user places enough real bids to equal the Buy Now price, a pop-up appears preventing the user from placing any more bids and prompting them to select Buy Now," according to QuiBids's Brown.

Money Money Money Penny-auction sites exist and proliferate because they're so profitable. Even if someone really does score an iPad for a winning bid of $70, the site has likely made thousands of dollars from the other bidders on the item. Additionally the sites are making a profit on the retail items they sell. Then there are the hidden fees that consumers might be paying without realizing it. The Federal Trade Commission cautions that before they register, consumers thoroughly read the terms of use for membership or ongoing subscription fees.

"There will be people who choose not to follow our advice, and that's the customer's decision to make. We do, however, offer a no-questions-asked money back guarantee on all unplaced bids," Brown said.

Bidders sometimes can recoup their losses in the form of lawsuits. "Consumers can, and often do, attempt to recover funds lost through what they allege to be illegal wagers," Newman said. "Poorly drafted website terms of service that explain the rules may also leave a website operator vulnerable if they are found to be contrary to public policy. As a result, plaintiffs may also be able to pursue claims for money had and received, since a court may ultimately conclude that there was no express contract governing the transaction."

HappyBidDay did not immediately respond to a request for comment.

Editor's Note: This story was updated at 11:30 a.m. ET with comment from QuiBids, and again on 7/10 to remove mention of uBid.com, which said it is not a penny-auction site and does not charge customers for bids.

Chandra is senior features writer at PCMag.com. She got her tech journalism start at CMP/United Business Media, beginning at Electronic Buyers' News, then making her way over to TechWeb and VARBusiness.com. Chandra's happy to make a living writing, something she didn't think she could do and why she chose to major in political science at Barnard College. For her tech tweets, it's ChanSteele.
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